Old Mutual Life Sanctions Report
The above link details the inadequacies of risk management compliance programs in meeting Financial Intelligence Centre Act (FIC) regulations by Old Mutual Life Assurance Business.
The company incurred administrative sanctions and financial penalties to the detriment of its reputation and social standing in the eyes of the public, institutional investors, and partners.
The damage can also negatively impact the company’s bottom line, as some institutional investors and international partners may withdraw their investments and funding.
This is necessitated by mandates that clearly state some investors cannot continue associating themselves with companies failing to comply with regulations, as this will also damage their brand reputation.
It is vital to ensure that the balance sheet is well diversified to withstand the risk of withdrawal of funding and investments by major partners due to unforeseen risks. The makeup of the balance sheet should be structured in such a way that no major investor or funder holds more than fifty percent, as any crisis involving the major investor could collapse the business.
This would create a liquidity crisis, as replacing the outgoing investor would be costly and difficult. The company’s position in the eyes of lenders in the market would be negatively affected, and any lending would come at a hefty premium.
However, we expect the company to regularize its position and meet all compliance requirements, as it has the means and resources to absorb the risk.
Some clients need to be reassured that their money is always safe despite these minor weaknesses in control. Serious and positive engagement with the client base is of paramount importance to temper rumors.
Customers’ funds are segregated from business funds, and customers should always be made aware of this, either in contractual agreements, social media interactions, or advertisements.
An explanation to shareholders regarding these incidents will help maintain positive, sustainable, long-term relationships. A clear solution and source of payment for these penalties should be communicated.
This will also demonstrate the resilience of the company’s contingency plans and its risk management capabilities, as in some cases, these funds might come from insurance or other sources such as savings.
How to Manage the Operational Incident Going Forward
The company should revisit the source of the incident and apply corrective measures promptly to prevent recurrence.
A thorough assessment of its risk management framework, personnel, and oversight should be conducted to understand how controls failed to proactively manage the risk.
Operational risk management will assist in identifying grey areas.
Employing skilled and experienced professionals in compliance management will aid the business in managing compliance risks effectively.
The evolving and dynamic nature of compliance regulations calls for interdepartmental meetings and engagements.
Regulatory and compliance costs are increasing companies’ operational expenses; therefore, it is essential to find the best ways to manage overall business costs.
Source: SARB Media relations
